M&A - the chance to breakthrough?

Posted by

Tony Kuhel

Normally our 'case histories' focus is on a specific project or program. We are seeing mergers and acquisitions, however, benefitting from more of a 'learning history' approach and elected a slightly different story line.

The other factor is that while there is clearly a growth in mergers and acquisitions (M&A), the fact is that M&A are actually only two of a number of corporate development mechanisms. Also that learning critical to successful M&A also comes from, and in some cases is hidden in, the application of strategic partnering or alliances, joint ventures, and even strategic divestitures.

This becomes particularly critical as we recognize that the focus of most corporate development (CD) organizations is migrating to international deals, that investors and stakeholders are growing aware of the importance of all deals being "transformative," and that the underlying theme as to why M&A continues to be only 30-40% successful (being kind, let's say 50%...it is a coin toss) is the same for all the forms of deals with M&A the least affected by the culprit – corporate culture.

As we finished our recent research and reflection on 'deals,' it is painfully clear that the metrics being used remain largely unchanged. If "we manage what we measure," this suggests little hope that the M&A process will be managed differently. Further, in spite of a clear awareness that it is the intangibles that are stonewalling the limits of success for M&A, the world of CD has no real ground swell of intention to change approaches. We see the classical definition of insanity emerging...and we expect no real shift in success. This is confirmed by nearly 10 years of performance history. With the push to transformative M&A (that is, the demand is for 1+1 to equal 3 or more)...we would forecast the historic straight line of a coin-toss will soon emerge with the trend being declined success.

Our learning history builds on extensive experience with some of the largest M&A's in history and some of the smallest, with international JV's, divestitures, and a wide range of integration challenges. Not necessarily in roles with CD but in roles to make deals work, experience in forming integrations into successful closes in spite of 'failed' M&A strategy, of supporting the transformation of mediocre integrations into successful corporate change/transformation programs, and so on. Our story is really around the awareness that while we want to think of the M&A as a project with a beginning and an end...it is more like organ transplant surgery.

The Challenge

How do we shift the current expectation of an M&A being an investment that must show immediate, positive ROI into and investment that shows immediate and long term ROI by serving as a catalyst as well as an ingredient on the way to optimum overall and overtime performance?

"The acquiring of physical assets went well but the return on time and investment did not find us embracing a success or the new level of capacities we had expected...it was more like business as usual but a lot harder." And as we saw the need for serial M&A, the hallucination of being the biggest and most successful gave way to the reality of burning out while making things look successful.

This culminated in British Petroleum (BP) with the first year in decades where our company lost money. We needed to do something and do it fast if we expected to compete, let alone be the leader, in the aggressive, global, fast moving world of big energy.

As noted in the series on our work at BP in HBR, the first prophetic article by Steven Prokeseb noted, "John Browne sounds more like a Silicon Valley CEO than the head of the giant British Petroleum Company."

Awareness of a challenge starts with our experience in multibillion dollar deals where we see ground truth being surfaced...we were not happy with the outcomes. Or perhaps put more positively...we knew we could do much better. And we had a corporate leadership that shared this view. The first challenge is to make that awareness and commitment across the organization. If you do not see a challenge...you can stop reading here.....

[intermission.........]

BP had experienced how to do work globally but it was becoming clear the old model of central decisions had to give away to a flattened organization able to act locally while thinking global. It had a long tradition of attempting the cultural shifts needed to support this new culture – as had many other majors. In general, however, the attempts had limited success. Other major companies in technology, manufacturing...even the US Army...were looking into new approaches. The deep question and challenge - what would work for BP and what would success look like? And this included an awareness that the solution might not look like past experiences...in fact, it could not.

The Solution

While the solution is heavily around the BP experience, it is not entirely so. We draw on insights from life sciences, risk management, service companies, financials, military, non-profits – joint venturing in other countries, and so on. The observations and learnings from one company are essential...but not sufficient for the solution here.

BP considered well known initiatives (emerging and old) like Six Sigma, Lean, TQM, Fifth Discipline and realized the key for success was what became called Knowledge Management (KM). But unlike many KM attempts, the focus, like the US military, needed to be on people not on technology. Learning before, during, and after major (in size or strategic importance...but always efforts we were doing over and over) was at the core of business change. Typically not recognized but also always present were tightly knit communities that would identify know-how and know-what to target continuous improvement. Continuously seeking to improve output and to routinely turn inside the learning circle of the competition ultimately lead to becoming the much talked about and seldom realized "Learning Organization."

Very simple in concept but very hard in terms of challenging the fast pace and limited collaboration of past practices. Soft was hard until we demonstrate that results were very substantial and tangible. The transition also became easier once it was recognized that practice groups were much faster and more effective at identifying the key learning and transfer than the standard hierarchy of the former organization. This has been confirmed in a wide range of clients.

The Outcome

During the first year BP was able to achieve nearly a billion dollars in hard value from managing its know-how. This was critical. In many cases seeing for the first time what it did not know it knew... applying that alone was critical and has been confirmed in sectors across the world by Escalys. Then into innovation and a soaring level of confidence in its total capability and clarity on what was possible and how to achieve this via key initiatives like the M&A, exploration and production, operations excellence, and the use of advance technologies and shared learning.

BP was recognized as the leading knowledge company in the Western Hemisphere by IBM and the American Productivity and Quality at its annual Conference. The acquisitions of AMOCO and ARCO, establishing of BP Solar and more, became the norm with a speed and ROI well beyond expectations. Challenging integrations like Chevron/Gulf Oil were finally remedied. In addition to the HBR series of articles, books were written about the work and history was documented.

As a result, BP rocketed to a position as one of the world's leading petroleum companies – with the goal of moving Beyond Petroleum. Unfortunately, the euphoria led to miscues and lessons not remembered in spite of the best of intentions. Particularly at issue was likely the downsizing and focus on immediate, financial results heavy on cost cutting. Events like the Texas City Refinery explosion and Deepwater Horizon oil spill emerged as global incidents. More books and articles were written. Interestingly, few including the opportunity to learn deeper lessons on the management of culture, sustaining cultural transformations, and to offer improvements in the practice that has now been learned and applied globally for 'culture management; – beyond petroleum. '